Following 'disappointing' (to some) producer price data, consumer prices missed expectations for the 5th month in a row with a mere 0.1% rise MoM (0.2% exp). Year-over-year growth in core consumer prices also slowed for the 7th straight month dropping to just 1.7% - the slowest since Jan 2015. Amid this dismal report, there is a silver lining for Americans, the cost of shelter rose just 0.1% - the smallest rise since March.
The breakdown by components
The index for all items less food and energy increased 0.1 percent in July. The shelter index rose 0.1 percent in July, its smallest increase since March. The rent index increased 0.2 percent, while the index for owners' equivalent rent rose 0.3 percent. However, the AriBNB effect keeps crushing hotels - the index for lodging away from home fell sharply, declining 4.2 percent.
The medical care index rose 0.4 percent in July, the same increase as in June. The index for prescription drugs continued to rise, increasing 1.3 percent in July after rising 1.0 percent in June. The index for hospital services rose 0.5 percent, and the physicians' services index advanced 0.1 percent.
The recreation index rose 0.3 percent in July, its largest increase since February. The index for apparel rose 0.3 percent after declining in each of the past four months. The index for airline fares also turned up in July, rising 0.7 percent following 3 months of declines. The index for motor vehicle insurance continued to increase, rising 0.3 percent.
The dollar is disappointed:
In his preview of a potential 5th consecutive CPI miss, RBC's Charlie McElligott has this to day:
US CPI (core) was always going to be the headliner of the week, as the 2.5 year global macro focus has continued to center on the debate around ‘disinflation / reflation’ range-trading around it. Last week’s excitement around ISM Prices Paid and AHE’s beats (and 5y breakevens crossing north of 1.70 cleanly) however has been tempered by the disappointing PPI print yesterday (shouldn’t really fixate on that, as Tom Porcelli laid-out yday).
In light of the recent market wobble though, I can now see this going two very different routes. An ‘inline to better’ number (.2) could definitely arrest the ‘sentiment drain’ in global risk markets right now, with long-awaited signs of US inflation and data being ‘back on track’ as a catalyst for higher Dollar & rates (real yields having collapsed recently). That said however, with regards to the current US exporter / mega-cap Tech / FAANG ‘boon’ that has been the Dollar coming unglued, it might actually add further pressure to these areas which are obviously being ‘stressed’ (on account of positioning) ‘as is’ IF we were to see a strong counter-trend rally in Dollar kick-off.
Conversely, another miss in core CPI would REALLY muck-up the picture for the Fed and rates, with the potential for the market to try and price a Dec Fed hike out entirely, along with increased expectations for the Fed to drop their ‘dot plot.’ This would likely be the next driver of leg-lower in USD and with it, open up the potential for rates to revisit 2.0% level, especially with the potential scope for $/Y to travel to 105 and what that would do for Japanese ‘mechanical’ buying (and similar Yuan / Chinese FX reserve manager flows too). In that case, you are likely to see a return to the ‘slow-flation’ positioning narrative—long secular growth, long low risk (‘duration sensitives’) against short cyclicals…sigh. And I also think that if this were to occur and the Euro strengthened significantly again, you are going to see folks girded to short the EU exporter-centric DAX further.
Longer-term, that will probably be a ‘fade,’ but we’ll cross that bridge when we get there.